The Sustainability of America’s Health and Retirement Security Programs

The House Budget Committee held a hearing today exploring the sustainability of America’s critical health and retirement security programs – Medicare and Social Security. In testimony before the Committee, the two programs’ Chief Actuaries, Richard Foster and Stephen Goss, underscored the threat posed by the unsustainable status quo and made clear that reform is necessary to ensure the health and retirement security of America’s seniors.

Foster, Medicare’s Chief Actuary, detailed the access problems posed by the price controls under the President’s health care law, and offered greater confidence in the impact of choice and competition to better address health inflation.

Chairman Paul Ryan’s opening statement can be viewed in its entirety here.

Congressman Tom Price of Georgia asked Medicare's chief actuary Richard Foster about the practical impact of the President's health care law – in which savings are sought by paying providers less for the same amount of care. Under the President’s health care law, according to Medicare’s Office of the Actuary, providers of Medicare services will see cuts to their Medicare reimbursements past the point at which they can reasonably provide care to seniors. Physicians would be reimbursed for their services at roughly 50 cents on the dollar by 2020, and down below 30 cents on the dollar in the years beyond.

PRICE: What happens when Medicare payments are inadequate?

FOSTER: We’d like not to find out. But as you can imagine, especially in your situation – or any of us: if we have a job, if we are paid a certain amount for the services or the goods we provide, and what we’re paid ends up not being adequate to keep us in business, then we’re going to go out of business, or turn our business elsewhere. So, the potential access problems could be very serious. We see with the Medicaid program, of course, in some states the payment rates - particularly for physicians - are quite low and the access to care is quite low.

PRICE: So the access that patients have to physicians may be markedly limited?

FOSTER: Well if the 30% reduction went through, for example come January 1st, I think there would be a noticeable reaction – very noticeable.

If You Like What You’ve Got, You Can Keep It:
“Hard to Imagine” says Medicare’s Chief Actuary

Chairman Ryan asked Medicare’s Chief Actuary if health care providers were paid less by Medicare for their services, as the President’s new health care law dictates, would providers be able to stay in business? Mr. Foster’s answer adds weight to the case that the new law must be repealed.

FOSTER: …I’ve tried to raise concern about this and make sure that all of you are aware and you can monitor this and make sure nothing bad happens. As you’ve pointed out, Mr. Chairman, if at some point our payment rates to providers become less or significantly less than their cost to providing services, then they will either be unwilling or unable to keep providing services...

Within 10 years a significant proportion of these providers would go from positive margins to negative margins, solely as a result of these lower payment updates. But in the longer term – in the Trustees report – it gets up to be over 40% of these providers would end up shifting to negative profit margins.

Rep. Bill Pascrell, member of the House Budget Committee and proponent of the President’s health care law, sought to make the contradictory claim that the President’s new healthcare law is fully paid for – and yet the major source of savings (the government pays providers less for their services) would not materialize.

RYAN: “You can’t have it both ways. Either these cuts do not occur and [the President’s new healthcare bill is] not paid for, or they do occur and it’s paid for.”

The bipartisan premium support model – a version of which was advanced in the House-passed Path to Prosperity – requires providers to compete against each other for patients’ business, rather than continue to lobby a government monopoly for favorable treatment. Premium support reforms ensure that society’s most vulnerable—the poor and the sick— receive more assistance, while the wealthy receive less. Chairman Ryan asked Mr. Foster about his views on the merits of such an approach to strengthen Medicare.

RYAN: Do you think a system set up along [premium support] can achieve savings in Medicare while continuing to provide for a basic Medicare benefit?

FOSTER: As a general rule, certainly… If a plan can come through with more efficiency and at a lower cost, participants in that plan would get a cheaper premium. We’ve estimated for many years that competition among plans in a premium support setting like this could have advantages and lead to somewhat lower costs for Medicare. It can get you to the lowest cost consistent with good quality of care.